The chief executive of the Royal Bank of Scotland has hit back at accusations by Deputy Prime Minister Nick Clegg over business lending.

The chief executive of the Royal Bank of Scotland has hit back at accusations by Deputy Prime Minister Nick Clegg over business lending.

Mr Clegg said yesterday that UK banks are using banking reforms as an excuse to restrict business lending.

Speaking exclusively to the MEN from RBS's Manchester headquarters, Stephen Hester rejected arguments made by Mr Clegg when he addressed the Institute of Directors' annual convention in London.

Mr Clegg claimed the recovery had been slowed because banks weren't lending enough to firms.

He said: “Because the banks have been instructed to build up their capital stocks under new international regulations they are rushing to fill their black holes and, in the process, becoming too risk averse in their lending, too demanding in their terms.

“But these new requirements are not a reason to sacrifice business lending, because they don't need to meet them overnight.

“The very sensible timetable, which gives them until 2019 to meet their capital targets, allows them to make progress in a phased and steady way.”

He added: “My message to the banks is this: of course get your balance sheets in order, but don't lurch to other extreme at the expense of British businesses.

“Don't unnecessarily hoard capital when businesses need loans.”

But Mr Hester countered: “What he says is simply not true.

“The regulator is putting banks under enormous pressure to raise capital ratios now, not in 2019.”

Although Mr Hester agreed that regulatory changes had increased the cost of borrowing, he argued they had not affected its availability and that the real issue was demand.

He said: “After every recession, people in business lack confidence.

“They are selling less of their goods and services than they did before, so they take less risks and pay down their debt if they can.

“So there is a lag period before they have the confidence to take on more money.

“You can see it easily in overdrafts. For the last three years in a row, businesses on average have paid off their overdrafts.

“If there was a big demand for extra money, businesses would be using their overdrafts but they are not.”

He said RBS currently approves 85-90 per cent of all small business loan applications and that the majority of complaints about access to finance came from the real estate sector, where he conceded lending standards had changed after banks had been accused of lending recklessly during the property 'bubble'.

Speaking on the news that the economy had seen a 0.2 per cent contraction into recession, he said: “If it has turned out to be slightly on the negative side of neutral I think that in itself has no significance whatsoever, it is just noise in the numbers.

“I don't think the economy is contracting in a significant way and that is certainly not what we see from our customers. But neither is it growing significantly.”

He added: “America has started to put together what looks like an encouraging recovery, although it is early days, and normally six to 12 months after America starts expanding, we follow and then Europe follows us.

“I think there is a reasonable chance that growth will begin to strengthen in the second half of the year, but this is by no means a certainty and people are going to continue to be pretty cautious until they see how the world works through it.”

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